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Gujarat Gas set to lose key Morbi market as tile units switch to LPG

Informist, Wednesday, Nov 23, 2022

–Gujarat Gas Nov sales volume in Morbi at 2.4 mscmd, sources say

–Gujarat Gas Nov sales in Morbi down 2/3rd on-year, sources say

–LPG replaces 4 scmd of Gujarat Gas sales in Morbi, sources say 
 

By Sunil Raghu

 

AHMEDABAD – Gujarat Gas Ltd, India’s largest natural gas supplier in terms of sales volumes, looks set to lose the key market of Morbi, as local tile makers switch to liquefied petroleum gas to take advantage of the lower prices.

 

The volume of natural gas supplied by Gujarat Gas to the tile makers of Morbi has dropped by nearly two thirds year-on-year to 2.4 mscmd this month, as the company struggles to convince tile makers to use natural gas as the primary fuel to fire their units, sources said.

 

Gujarat Gas had sold nearly 7.5 mscmd of natural gas in November 2021.

The main reasons behind the fall are the high prices of natural gas supplied by Gujarat Gas, and a drastic drop in demand for tiles made by Morbi units, in both domestic and export markets. This has seen tile units invest 6-7 mln rupees each in building infrastructure for a switch to fuels such as LPG and propane.

 

Alternative fuels are said to have replaced nearly 4 mscmd of natural gas demand in the region.

 

A lot of people have switched to LPG due to a recession and a drop in exports, said K.G. Kundaria, president of the Morbi Vitrified Tiles Manufacturers Association. According to him, production is down nearly 30% and exports have fallen by 30 bln rupees.

 

Tiles units in Morbi generally carry out business worth 400-500 bln rupees a year, with exports of 140-150 bln rupees.

 

Morbi ceramic units typically account for 65-70% of the total sales of Gujarat Gas in the industrial segment. The company’s total gas sales volume in the September quarter were at 7.62 mscmd. Of this, industry accounted for 4.47 mscmd, CNG about 2.32 mscmd, domestic piped gas 0.69 mscmd, and commercial piped gas had a volume of 0.14 mscmd.

 

Gas supplied by Gujarat Gas in Morbi is currently priced at 64 rupees per scm, including taxes, while LPG or propane is cheaper by 18 rupees per scm equivalent, according to Dharmesh Jobanputra, partner at Trinity Engi Tech, a company providing equipment and services for industries seeking to make the switch to propane. Gujarat Gas had cut gas prices as the state government announced a cut in value added tax to 5% from 15%, effective Oct 17.

 

In a recent report, ICICI Securities said tile exports could grow 30-40% in the current financial year to 170-180 bln rupees, led by normalisation of freight costs, cheaper energy costs in India compared to Europe, higher anti-dumping duty imposed by Europe on Turkey compared to India, and extended lockdowns in China. China is a key competitor for supply of tiles in the global market.

 

This, Jobanputra and a state government official said, is unlikely to benefit Gujarat Gas in the coming two quarters at least, as more tile units in Morbi are setting up infrastructure to use propane. The use of propane would soon replace 5.5 mscmd of gas equivalent and tile makers would switch back to using natural gas only if its prices fall below those of propane.

 

Natural gas has had near monopoly as a fuel in the Morbi tiles industry since early 2019, especially after the National Green Tribunal imposed curbs on the use of coal gassifiers to cut pollution in the area. Now that the tiles units have installed the necessary propane handling equipment, they would have the option of switching to LPG any time in the future too, even if they switch back to natural gas for economical reasons. 

 

Today, shares of Gujarat Gas ended 0.3% lower at 503.55 rupees on the National Stock Exchange.  End

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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Source: Cogencis

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